My Opinion on Manufacturing Coming Home

Manufacturing in the US is making a comeback. It has to be true -- it said so in my local newspaper. Actually, a similar story has been reported in lots of places, including a recent study released by the McKinsey Global Institute. That study is titled, “The next era of global growth and innovation.”

Propelling this comeback is an increased need to reduce the duration between the time that a product is designed and the time that it appears on the shelves. While much of the design has always occurred in the US, there was generally a lag before the product hit manufacture, which often occurred in a faraway place like China or India.

While we like to think we live and work in an ever-shrinking world (and we do), there’s still some amount of time to transfer information. And depending on the size of the run, it may or may not make fiscal sense, especially as manufacturing in the US is gaining momentum.

Part of this shift to the US has to do with the fact that labor costs in places like China are on the rise. There are also uncertain and potentially rising tariffs, fluctuating currency exchange rates, and fuel costs that have turned sharply upward in the past 24 months. Mix all those facts together, and when you ask why manufacturing is making a comeback domestically, the question becomes, “Why not?”

Wal-Mart recently announced that it would be buying an additional $50 billion worth of US-made products over the next decade. That sounds like a pretty good indicator to me. The company plans to increase orders for items like paper and sporting goods, which it already buys domestically, and bring back production of some textiles, furniture, and higher-end appliances. The latter item surprises me the most, as the US seems to have lost the appliance battle, but time will tell.

A defining statement in the McKinsey report sums it up: “As long as companies and countries understand the evolving nature of manufacturing and act on the powerful trends shaping the global competitive environment, they can thrive in this promising future.”

It’s generally acknowledged that manufacturing tends to rise as an economy grows, with emphasized growth coming out of the recession like the one of a few years back. Sustaining that growth, and by how much, is dependent on a bunch of factors. They include the availability of low-cost and/or highly skilled labor; having and/or building the proper infrastructure, meaning efficient transportation of resources/materials and of goods produced; and access to the technology that’s required to manufacture goods in this new world. There’s also a difference between manufacturing complex products as opposed to more simple goods.

A nice benefit of the increase in manufacturing is the service industries that get pulled along in tow. Depending on your definition, this could include the research and development activities, sales and marketing jobs, and certainly customer support.

The final piece of this puzzle lies with investment. Will the proper level of investment be made to fully secure the manufacturing growth in the US? If the promises made by both parties in the recent election hold true, the investment will be there. Where it comes from specifically is still to be determined, but it likely (hopefully?) will materialize.

Good for you, Nancy! I try to do the same as a consumer, and better yet, to shop locally. But living in a rural area means that a lot of things I want to buy aren't available locally. That, combined with the "volume is king" attitude of many chains with local operations means I end up buying more and more stuff online. That "volume is king" attitude makes no sense on the local small scale. Local businesses should be tailoring their wares to local shoppers. Many of the independents do, but not the chain stores.

That's great that you shop locally, Ann - we try to do the same. My husband's father owned a bicycle shop so we have a deep appreciation for people supporting local businesses. There is always the temptation of going into a brick and mortar store to gather information from the expertise of the employees working there, and then leaving without purchasing anything and buying the same product for less online. We don't mind paying more (within reason) because we know we are supporting their business and they provided us with a service in addition to the product, with their time and knowledge. Unfortunately with the advent of online shopping that is both convenient and often cheaper because they don't have a real storefront, these small business are becoming fewer and fewer...and we are losing something irreplaceable in the process.

I think there is a growing consensus among business leaders that it's important to have an agile supply chain -- and that ocean freight is not agile. Relying on large shipments of parts that come via container ship from another continent makes it difficult to respond quickly to a changing business environment. There is a big advantage in being close to your customer base.

This is causing many companies to refocus on North America -- but not necessarily the U.S. For instance, Cardinal Health, a major medical supply manufacturer, recently decided to relocate one of its assembly plants from the Chicago area to Mexico. This provides them with continued proximity to U.S. customers, and increased proximity to emerging markets in Latin America. Probably most important from Cardinal's point of view, it lowers their labor costs.

U.S. manufacturing has a lot of potential advantages (including quality, as Nancy pointed out). But, unfortunately, many corporate leaders still don't know the difference between price and cost. They haven't learned that lo barato sale caro ("cheap" is expensive).

The U.S. will never be able to compete as a "low-cost country;" at least, not if we want to maintain our standard of living. The only way the U.S. will be able to compete as a manufacturing country is by providing a better overall value than other countries. This means world-class quality, among other things.

Over the next few years, we'll see whether or not we're up to the challenge.

I routinely have parts made by machine shops, as well as build them on my own. I recently sent for RFQ, a set of very simple parts to a USA based machine shop. They returned a quote that was so outrageous, it is making think China is the only way. For example, that same USA based shop quoted me a part in the past around $13 USD, where a China company quoted me $5 USD. I went with the USA shop, since I want to support domestic growth.

But with the most recent quote, I have no choice but to go China.

Most USA shops I send RFQs to give me high priced quotes. Sometime, their prices are so high that they refuse to quote me at all. It isn't worth their time.

I wonder how much of that difference might be due not only to lower labor costs (which we, of course have continued to subsidize by sending our business there) but also to a different business model. I'm hypothesizing like crazy here, but I wonder if US machine shops and material suppliers that are used to supplying large companies simply aren't set up for pick and place and shipping, etc. in small quantities to individuals such as yourself. And if companies in China are, for several reasons I can imagine along the way from manufacturing to shipping.

Along with Cabe's comment, I try to keep sourcing in the US. Recently I ordered some blank boards from a company in Wisconsin, but the parts arrived via China Post. The Wisconsin address is just a front-end for web ordering at a Chinese board house.

I hate to be a pessimist, Charles - but it looks like it is a move to satisfy those looking in, without real substance. I hope I'm wrong...some of the conditions I have heard from colleagues visiting factories there are terrible.

It also mentioned that Foxconn said it plans to manufacture some Macs here in the U.S. - That would be interesting to follow and see if it really comes to fruition - that indeed would be manufacturing coming home.

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